Apple, Inc.

Formulation Presentation
March, 7 2008
Mathew Lugo, Brooks Johnston, Jessica-Anne Stoudemire, Kerri Barringer, & Ben Ponds

Executive Summary
Presented by: Kerri Barringer

Apple Profile
Products: Desktop computers, laptops, digital music players, software Markets: High-end, technology-savvy users Size: $8.3 billion in sales in 2004 Industry:

Key Players:

Dell Hewlett-Packard Microsoft

Keys to success:

Innovation Quality support services

Apples Mission & Vision

Mission: Apple is in the business of innovating, manufacturing, and marketing/selling computer hardware and software solutions, related peripherals, and communications equipment.

Vision:

To be a leading innovator of new technologies that change the way people go about their daily

General Sector of the External Environment

Presented by: Ben Ponds

Operating Environment
Economic Factors Intense growth dependent on machines Demand for product services & support Social Factors Wireless communication Powerful & portable devices Political Factors Copyrights protection Technological Factors Strong rivalries among top competitors Continuously changing products Ecological Factors Pollution Corporate Social Responsibility Summary Product support services Powerful & portable devices

Industry Analysis
Presented by: Matt Lugo

Porters Five Forces Model

1. Rivalry Among Existing Competitors

Innovation; First to enter the market Competitors with similar products Forward Integration

2. Substitute Products

3. Powerful Suppliers

4. Powerful Buyers

Backward Integration
Advanced Knowledge Capital Requirement

5. Threat of Entry

Competitor Profile: Hewlett Packard

Hewlett-Packard Company provides various products, technologies, software, solutions, and services worldwide. Sector: Technology Industry:Diversified Computer Systems Products: Servers, Business Critical Systems & Software

Competitor Profile: Dell

Engage in the design, development, manufacture, marketing, sale, and support of various computer systems and services worldwide. Sector: Technology Industry: Personal Computers Products: Desktops, Mobility Products, Software & peripherals

Competitor Profile: Microsoft

The world's #1 software company provides a variety of products and services, including its Windows operating systems and Office software suite. Sector: Technology Industry: Application Software Products: Video game consoles, servers and storage software, and digital music players.

Apples Position within the Industry

Personal Computers

Lack customer & product service Competitors dominate market

Multi-Media Peripherals

Innovative; first to enter the market

Apple needs to focus on product differentiation to avoid becoming a lowmargin commodity, especially in terms of digital music and communications.

Value Chain Analysis

Presented by: Brooks Johnston

Value Chain Analysis

Supporting Activities:

General Administration:

Identify new-product market opportunities & environmental threats, public image & corporate citizenship Recruit, train, motivate, challenge, and promote the most talented employees Good relationship with suppliers,

Human Resource Management

Procurement

Value Chain Analysis

Primary Activities: Technology Development Research & development leading to product and process innovations, timeliness of technology developments, encourage creativity Operations Product design, productivity of equipment, effective quality control systems Marketing and Sales Identify customer segments, innovate sales & advertising, image of quality, favorable reputation, brand loyalty Service Ability to provide replacement parts or tech support, warranty/guarantee, quality of customer education & training

Core Competencies & Competitive Advantage

Procurement

First computer software company to negotiate with RIAA to allow consumers to legally download music online Main objective is to be the leading innovator of new technologies that change the way people live their daily lives Identify specific customer segments and needs, develop an image and reputation of quality, innovative advertising

Technology & Development

Marketing & Sales

Strengths Relative to Rivals

iPod & iTunes software revolutionized the music industry, worked with RIAA to develop deal Considered the BMW or cool computer system to own PC is a mature industry/productApple found new ways to spark demand Successfully differentiate products Brand Image and Recognition

Weaknesses Relative to Rivals

Apples market share is low as prices for windows-based machines fall Apple has limited number of suppliers to obtain raw materials Apple uses third-party music contentpotential to limit music or limit availability in the future Promotional activities focus on core groups misses the larger audience of PCs for nongraphics based business and home users Cell phone vs. iPod

Industry Specific Competitive Advantages

Development of innovative new technologies Dell grew successfully by eliminating the middle-man and selling direct Microsoft is #1 software company HP is currently the #1 PC manufacturer

Financial Analysis of Apple

Presented by: Kerri Barringer

Operating Income and Net Income

1,000,000

800,000

600,000

Dollars (in thousands)

400,000

200,000

Operating Income Net Income

0 2000 -200,000 2001 2002 2003 2004

-400,000

-600,000 Years

Asse ts, Liabilitie s, Stockholde r's Equity

9,000,000

8,000,000

7,000,000

6,000,000

Dollars (in thousands)

5,000,000 Total As s ets Total Liabilities 4,000,000

Total Stockholder's Equ

3,000,000

2,000,000

1,000,000

0 2000 2001 2002 Years 2003 2004

Net Profit Margin

15

10

0 2000 -5 2001 2002 2003 2004

Percent

Apple -10 Dell HP Industry -15

-20

-25

-30

-35 Years

Current Ratio
4

3.5

2.5 Apple

Years

Dell HP Industry

1.5

0.5

0 2000 2001 2002 2003 2004

Total Debt to Equity

2

1.5

0.5

Apple Dell HP Industry 2000 2001 2002 2003 2004

-0.5

-1

-1.5

Revenues/Total Assets
2.5

1.5 Apple Dell HP Industry 1

Year
0.5 0 2000 2001 2002 2003 2004

SWOT Summary & Core Issue

Presented by: Matt Lugo

SWOT Summary
Strengths:

Innovation; first to enter the market Product & Market Development Customer and Product Services Strategic Alliances with leading communication firms Forward integration Becoming a low- end commodity

Weakness:

Opportunities:

Threats:

Core Issue of Apple

Apple needs to focus on product differentiation to avoid becoming a lowmargin commodity, especially in terms of digital music and communications.

Long Term Objective & Strategic Scenarios

Presented by: Ben Ponds

Long Term Objective

Technological Leadership
Product Development Quality Support Services

5-year Expectations
By 2010 most cell phones will have mp3 capability. High quality customer support services will be in great demand.

Future Scenarios for Apple

Best Case Leader in music capable cell phones Unsurpassed customer support Worst Case Become a low-scale commodity Fail to integrate quality support services Most Likely Continue to successfully differentiate out products Retain strong support and service operations

Possible Objective Shifts

Worst Case Scenario

Competitive position

Best Case Scenario

Productivity Public responsibility

Corporate Level Business Alternatives

Presented by: Brooks Johnston

Corporate Level Strategic Alternatives

Enter communications industry

Establish relationship with cell-phone carrier

Expand customer service capabilities

Add brick & mortar locations that focus on training clinics to use Apple products, service their product problems, Apple Geek Squad, etc

International Corporate-Level Alternatives

Global brick & mortar locations Nearly 2.4 billion people living in China and India alone, accounts for 37% of the global population Major areas of economic growth are in newmarkets (China & India), and in product & service expansion

Strategic Alliances as CorporateLevel Alternatives

Establish relationship with cell phone carrier

Entrenched in professional media creation markets, provide fundamental intellectual property to be used in consumer oriented software

Acquisition & Restructuring Corporate-Level Alternatives

Apple is limited to the number of suppliers it can use to obtain raw materials Some key components are subject to industry-wide availability constraints and pricing pressures Apple needs to find multiple component suppliers Possibly acquire suppliers

Keys to Success
International

Country specific economic, social, political, technological, and ecological factors Challenge in negotiating contract terms & copyright agreements Finding multiple component suppliers

Strategic Alliances

Acquisition and Restructuring

Long-Term Objective: Technology Leadership

Enter communications industry:

Focus on product development and differentiation in areas of digital music and communication Global brick & mortar locations that focus on quality support services (training and tech support)

Expand customer service capabilities:

Business Level Strategic Alternatives

Presented by: Jessica-Anne Stoudemire

Business Level Strategic Alternatives

Strategic Business Units

Multimedia Devices and Software

iPod, iTunes, etc. iMac, iBook, etc.

Computers

Computer Hardware Computer Software

Safari, iMovie, etc.

Generic Competitive Options

Differentiation
Focus Differentiation

Differentiation: Pros and Cons

Pros:

Cons:

Larger market than focus differentiation High customer loyalty Reputation for innovative products

No cost advantage Hard to sustain due to imitation Could achieve greater differentiation with focused marketing

Relevant Rival: Microsoft

Focus Differentiation: Pros and Cons

Pros:

Cons:

Ability to meet targeted segments needs Ability to adapt to segments changing needs or demands High customer loyalty within segment

Less opportunities for growth Targeted segments demand has large impact on revenue Non-focus oriented competitors can better compete in pricing

Relevant Rival: Dell

Generic Competitive Option: Differentiation

Grand Strategies
Market Development Product Development Innovation Strategic Alliances

Generic Competitive Option: Focus Differentiation

Grand Strategies:
Concentrated Growth Concentric Diversification Strategic Alliances Product Development Innovation

Strategic Choice
In order to achieve the long term objective of technological leadership it is recommended that Apple establishes a strategic alliance with a leading communication provider